"Dance to my Tune!" Discovery Mode and Built-In Recommendation Bias

Abstract

We examine the strategic considerations and effects of product placement services in digital content aggregators, focusing in particular on Spotify's ``Discovery Mode''. Discovery Mode introduces bias in users' consumption bundle that content providers pay through discounted royalties and triggers users to actively adjust to it in response. The platform's ability to manipulate consumption bundles leads to promotion of the cheapest content available and degradation of users' effective consumption bundles. In a market where bias would not occur without the product placement service, its introduction benefits the lowest-cost content provider; In a market where bias could emerge organically, instead, it allows larger competitors to threaten a reversal of preexisting consumption biases in their favor. If consumer utility is negatively impacted by bias, the use of such services leads to a loss of market efficiency. Moreover, Discovery Mode exacerbates a platform's capacity to influence consumption, indirectly heightening the risk of market concentration.

Keywords: platform economics, media economics, content aggregator, recommendation bias, innovation JEL Codes: D4, L1, L5

JEL Classification: D4, L1, L5